What Electronic Arts wants investors to know

It’s not yet time to put away those controllers. Electronic arts (NASDAQ: EA) recently surprised Wall Street with strong sales growth to close its fiscal year 2021. Video game fans have continued to engage with its franchises even as social distancing loosens in key markets like the United States.

And management believes the good times will last at least until fiscal year 2022. In a conference call with analysts, CEO Andrew Wilson and his team explained how they surpassed their initial annual sales target by more. of $ 600 million. They also predicted more growth this year.

Let’s take a look at some highlights of this earnings call.

Image source: Getty Images.

Meeting to chat while playing Apex Legends

“The huge engagement through our core live services is a powerful demonstration of how players come together and form social networks through our experiences,” Wilson said.

Rival Activision Blizzard (NASDAQ: ATVI) said earlier in the month that the Call of Duty The franchise once again topped the sales charts in 2020, attracting 100 million new players to the ecosystem. But EA also has its own runaway winner. The Battle Royale brand Apex Legends has just passed 100 million players and has approached a record engagement in recent weeks.

All of this success has enabled EA to predict over $ 700 million in net bookings in the new fiscal year, meaning it has a good chance of becoming a billion dollar brand as early as 2022, after the company has launched the mobile version of the game. “Apex Legends is one of the most successful games on the market today, ”Wilson said.

Sparkling finances

“Underlying profit was also an all-time high, as was cash flow from operations of $ 1.93 billion in a full year,” said CFO Blake Jorgensen.

EA’s financial model shone as gamers continued to fight for high-margin subscription services and in-game micro-transactions. Subscription commitments, which EA calls “live services,” are now responsible for almost all of the company’s total business footprint.

“There couldn’t be a more dramatic illustration of how the business has evolved,” said Jorgensen, “with our focus on engagement and continued entertainment now generating three-quarters of our net bookings.” According to management, that $ 4.6 billion in live service revenue would equate to roughly 130 million in sales of a console version of the game.

Great growth ahead

“We expect net bookings for fiscal 2022 to be $ 7.3 billion, up about 18% from fiscal 2021,” Jorgensen said.

EA directed some of its growing cash flow to several significant acquisitions at the end of 2020, and these additional brands should help it close the sales gap with industry leader Activision Blizzard. The company also expects significant contributions from its established franchises, whether in sports games, Apex Legends, or a new chapter in the Battlefield Mark.

Investors were not thrilled with the 18% forecast, but executives explained that the forecast included several conservative assumptions, including only modest growth in the market. Battlefield launch and no real synergy from adding development resources from the acquisitions of Glu Mobile, Codemasters and Metalhead. The early impact of EA’s launch of Apex Legends on mobile devices is also a big question mark.

It seems likely that EA could increase sales by 20% or more this year, even after its 2020 record high, assuming there is no major launch delay. It’s a recipe for solid returns for investors and should keep shareholders happy to own the stock even if the increase in sales relative to quarantine demand declines throughout the year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Douglas Torres

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